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New EU taxes could fill Brexit budget hole

New European Union-wide taxes on financial transactions could be introduced to fill the €10 billion (£8.7 billion) budget hole that will be left after Britain leaves the bloc, under plans unveiled in Brussels on Wednesday.

Brexit is an opportunity for the EU to overhaul its entire financing, EU budget commissioner Günther Oettinger said, as he presented a report on future budget options. He said that Britain’s departure, due in March 2019, gave the EU the chance to update both its revenue and spending system, which has changed little in the past six decades. “If Europe is to tackle new challenges, the money must come from somewhere,” Mr Oettinger said. “We can either spend less or find new revenues.”

The financial transaction tax, also known as the Robin Hood tax, is one of the options. Until now, Britain has been the loudest voice against a tax on share, bond and currency transactions, but Brexit could pave the way to its adoption. “A percentage of the common corporate tax base or the financial transaction tax could be designed to reinforce the single market, mirror the benefits of the internal market for the largest companies and strengthen the fight against tax fraud and tax evasion,” according to the report.

Other suggestions are common energy or environmental taxes “to ensure a level playing field between companies and contribute to the global fight against climate change.” That could include receipts from auctions under the emissions trading system, and emission levies for cars.

Brexit blows budget hole

Britain’s departure means the EU will suffer a net loss of between €9 and €12 billion from its roughly €150 billion annual budget. “The gap in EU finances arising from the United Kingdom’s withdrawal and from the financing needs of new priorities need to be clearly acknowledged,” Mr Oettinger said.

But he said there was a budgetary upside to Brexit, as it would mean scrapping the “distortionary” €3 billion annual payments that Britain has been receiving since the 1980s, when then-Prime Minister Margaret Thatcher secured a rebate from the bloc.

The EU’s annual budget represents roughly one percent of the EU’s collective GDP, and around two percent of overall public spending. The revenue system is a combination of sales taxes, customs duties as well as transfers from the budgets of each of the 28 member states.

Although Brexit will be a budget crunch, it is a golden opportunity for the EU, according to Andrew Duff, a former Liberal Democrat MEP, and visiting fellow at the European Policy Centre. “The EU should use this crisis as the best chance since Mrs Thatcher’s day to reform the whole financial system,” he said. “New taxes should be created at the EU level to bypass national treasuries, notably a chunk of VAT going direct to Brussels.”

More than 70 percent of the budget is currently spent on farming and regional development, policies that the Commission admits reflect outdated priorities. New sources of revenue “should be conceived not only to finance part of the EU budget, but also to accompany its core policies,” the Commission report said, pointing to areas like security, defence, and migration.

Zsolt Darvas, a senior fellow at Brussels-based economic think tank Bruegel said Brexit offered the EU a chance to redesign spending. “The EU’s budget is stuck in the past and does not reflect the economic realities of the EU today nor of its strategic priorities,” he said. “The EU spends far too much on farming and regional funding and too little on areas like security and defence.”

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